The Effect of Endogenous Demand Factors in Supply Chain Network Design

Supply chain network optimization is presently performed by solving a cost minimization problem, without regard for potential revenue generation through endogenous demand. This capstone report analyzes several incarnations of endogenous demand expression and factors these incarnations in network design optimization by modelling the problem with a profit maximization objective. Under conditions with high endogenous demand and a complex network, simulations show that profit maximization improves profits by an average of 3.19% over cost minimization. Under conditions with limited endogenous demand expression, profit maximization will always result in profits greater than or equal to cost minimization. Given these considerations, organizations have the opportunity to improve profits by including endogenous demand expression in network optimization.